An I.M.F. Announcement on the Completion of Gold Sales due Soon by Julian D. W. Phillips: "All from the head of the World Bank down are also aware of the useful role that gold can play in acting as a ‘value reference point’. Should this happen gold will have returned to the world of money in real terms, albeit in a slightly different role to the one it had in the past. We termed this in earlier issues of the Gold Forecaster as gold no longer being a ‘means of exchange’, but as a ‘measure of value’....
What happens to demand with a 400 tonne drop in supply?
A 400 tonne drop in supply in a balanced market will pressure the demand side to find more gold.
· With mine supply pretty inelastic there will be only a small additional flow from that source.
· With jewelry demand in the developed world back to former levels, only much higher prices will deter them.
· With industrial demand [particularly electronics] now a necessity, demand is unlikely to be deterred by higher prices.
· With demand in India after an excellent monsoon and good harvests and GDP growth at 8.9% Indians are keen to buy at these prices and will not be deterred except by sharply higher prices.
· With the Chinese middle classes expanding rapidly as that country continues to develop, demand from there will continue to grow and most likely irrespective of the rising gold price.
· Central Bank demand is unlikely to abate no matter what the price, because their interest is solely in acquiring tonnages of gold. We note that as part of their ongoing program of gold buying Russia also bought 18.66 tonnes in October [against the I.M.F. sale of 19.5 tonnes]. Not only are they buying local production but are present in the open market.
Consequently, the only additional source of supply will have to be scrap supply or supply from current holders. So we ask, “At what price will current holders sell?"
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